CombineNet, one of the last remaining great American e-sourcing innovator firms, has been acquired by SciQuest. The price tag was $43M, with $26MM in cash and the remaining $17M in SQI stock. This leaves SciQuest with around $25M in cash reserves. Despite a headcount of around 80 employees, CombineNet’s revenues were a relatively modest $12M in 2012. SciQuest wants to keep all employees except the CFO and the CEO, who will only stay through the transition period. SciQuest plans to retain the Pittsburgh office in a somewhat hands off approach that it has touted with its acquisitions of AECsoft, Spend Radar, and Upside Software.
CombineNet has been perhaps the greatest pioneer of applying combinatorial optimization to strategic sourcing and the supply chain (e.g., transportation bidding) out there. The CombineNet deal clearly gives SciQuest some unique technology and domain expertise in complex modeling and solutions development. In the investor call today, CombineNet’s 22 patents were mentioned as defensible technology against competitors. CombineNet also delivers large name brand commercial sector clients (there are around 100 customers at CombineNet), who are predominantly Global 2000 firms. Among them, only 12 overlap with CombineNet’s current customer base.
CombineNet is seen as a foot-in-the-door solution since the tool typically and happily co-exists with solutions from just about all providers in the sourcing space. It is a way to break into more Global 2000 commercial accounts – especially large “whale” accounts that consume the CombineNet solutions set happily and hungrily. Client fees for CombineNet were mentioned as being in the $100K-125K range. But, considering the broad range of services that CombineNet offers, it’s hard to say how “typical” this number is.
SciQuest claims that the technical overlap with their Sourcing Director product and the CombineNet sourcing solution is nearly nonexistent. Spend Matters thinks that this a simplification. However, although the SciQuest management team expressed some concern that the high-end functionality can seem overwhelming (especially for lower-level buyers in non-commercial industry sectors), SciQuest will probably be happy to discover that the CombineNet tool can provide basic e-sourcing as well as extremely sophisticated events in a user-friendly, self-service manner (e.g., helpful wizards, category templates, etc).
Somewhat oddly, on the call SciQuest claimed that the sourcing/optimization opportunity is a “greenfield” activity. We are sure that firms such as BravoSolution, Emptoris (IBM), TradeExtensions, Iasta, and others would disagree. SciQuest does have a point though that few have the level of sophistication of CombineNet’s solution, but a greenfield it is not. Still, the ability to deliver higher impact and collaborative sourcing solutions is a key driver for helping procurement organizations capture the next level of value, and SciQuest was smart to have plucked a seriously valuable jewel in the marketplace.
Disclosure: SciQuest and CombineNet are both sponsors of Spend Matters.